After more than four months without a permanent leader, Legg Mason Inc.'s search for a new CEO might finally be near the end.

It probably can't come soon enough for employees and investors who have lived through months of uncertainty.

"The longer it takes to find a successor, the more trying it is to everyone's patience," said James Hardesty, chairman of Hardesty Capital Management in Baltimore.

Rumors have circulated about potential outside candidates, although as time passed, interim CEO Joseph A. Sullivan is believed by some analysts to have the inside track.

But whomever Legg's board of directors chooses to become the third CEO in the firm's history faces a host of issues — from investors pulling money out of its funds to the need to assuage the gripes of affiliates that manage its investment funds.

Money continues to flow out of its funds — a trend that's occurred in all but one quarter going back to 2007. The company now manages one-third lessthan it did at its peak six years ago.

And Legg is coming off its worst quarterly loss — $454 million — in five years. The loss was driven by a writedown of assets at one of the affiliates. Legg shares have languished in the mid-20s for more than a year. The stock closed Friday at $27.23 per share, nearly 80 percent lower than its peak seven years ago.

Former CEO and Chairman Mark R. Fetting spent nearly five years trying to reverse these trends before stepping down in October. Analysts say Fetting's departure came amid pressure from Legg director and activist shareholder Nelson Peltz, whose Trian Fund Management L.P. in New York is Legg's second-largest investor.

The new CEO will need to answer questions about Legg's direction, including addressing recent speculation that the company might be split up, said Daniel McHugh, president of Lombard Securities in Baltimore.

"There has been a lot of faith lost in Legg Mason in the recent past," McHugh said.

It will be especially important that the CEO articulates this message to employees, who have been distracted lately, he said.

"Anytime you have to go to work in an environment where a good deal of the day is taken up with speculation about who is going to lead the company forward, I don't think it's necessarily good for productivity," McHugh said. "People will have to see consistency."

Legg's next CEO also must decide what type of asset manager the company wants to be, said Russ Wermers, associate professor of finance at the University of Maryland, College Park's Robert H. Smith School of Business and a Legg shareholder. Should it rely on the draw of a star manager as it has in the past, Wermers said, or turn to a team approach?

Legg has nearly $649 billion in assets under management, down from a peak of more than $1 trillion in 2007.

If Legg sticks with the star model, Wermers said, it "can't just have one star manager. You have to have a succession plan."

Craig Sterling, managing director with EVA Dimensions in New York, said the top priority for the new CEO should be to boost the investment performance of the funds. That would stem the outflow of investor dollars and attract new money.

But it could take a few years to develop a better record, Sterling said.

Meanwhile, the CEO should look for ways to reduce Legg's expenses, which tend to be higher than its peers, he said.

"If they take an underperforming fund and fold that into a better performer, you need less people, you need less office space, and that all goes to the bottom line," Sterling said.

Legg is doing some of that already.

Last month it announced that it would merge Legg Mason Capital Management, the Baltimore unit that rose to prominence under Miller, into a much larger affiliate in New York. The company said a small number of employees would lose their jobs.

As part of that merger, too, the company plans to sublease 78,000 square feet at the Legg Mason tower in Harbor East, reducing its real estate costs there.

Dick O'Brien, senior executive vice president of Folger Nolan Fleming Douglas brokerage in Hunt Valley and a Legg shareholder, said the next leader needs to cultivate greater harmony among the affiliates.

Once Legg merges Capital Management into ClearBridge Investments in June, the company will have eight major affiliates. Each operates as a separate business with a different revenue-sharing agreement with the parent company.

"They still need to have their autonomy," O'Brien said. "But at the same time, there must be some areas of mutual cooperation that could exist."

For instance, Legg could leverage its affiliates' client relationships, perhaps by introducing fixed-income customers to its equity products, O'Brien suggested. That doesn't seem to be happening now, he said.

That might be easier said than done. Senior managers at the affiliates are used to operating independently — which can make the CEO's job difficult.

Even though its affiliates operate under a crazy quilt of revenue-sharing agreements with Legg, the interim CEO Sullivan told analysts this month that the company remains committed to the affiliate model.

Some affiliates complain privately about the inequity of the agreements and about Legg's marketing of their funds, according to published reports. Legg does not disclose details about its revenue-sharing agreements with affiliates.

Legg might be open to altering those agreements as it recently did with New York affiliate Permal Group.

In December, Legg agreed to acquire London-based fund manager Fauchier Partners for up to $136 million — $80 million upfront and up to $56 million within four years if financial targets are met — and merge it into Permal.

As part of that deal it came to terms on a new revenue-sharing deal with Permal. The new agreement reduces the amount of revenue sharing from the affiliate, although Legg would get a bigger slice if assets under management and revenues go up.

Legg also is introducing an incentive program that will let Permal managers invest in an equity plan and own a piece of the affiliate, depending on how well Permal grows its business. This could serve as a model for other affiliates, Sullivan said during a recent conference call with analysts about Legg's third-quarter earnings.

Legg faces two futures, Hardesty said. It could either rebuild its investment performance and return to prominence under the Legg Mason brand or the company could unwind, selling off some jewels — its affiliates — to their senior managers and others, he said.

Macrae Sykes, an analyst with Gabelli & Co. in Rye, N.Y., said the new CEO needs to be an industry veteran with the "financial engineering" experience to boost value by spinning off affiliates or acquiring other companies as it did with Fauchier.

Whatever tack the new CEO takes, analysts and industry experts agree that a turnaround for Legg will take time.

One of the biggest believers in a Legg's prospects is the company's largest shareholder — T. Rowe Price. The Baltimore-based investment company, through its funds and other portfolios, owns 10.4 percent of Legg as of Dec. 31.

Brian Rogers, Price chairman and chief investment officer, told Barron's last month that Legg is inexpensive at $26 a share, recalling six years ago when it was a $140 stock.

"Everything that could go possibly wrong at Legg has gone wrong in the past few years. The company had performance problems in key mutual funds. It had disgruntled affiliates," Rogers said. "We see little downside and significant upside, and we are eagerly awaiting the naming of a new CEO."